Union Finance Minister Nirmala Sitharaman on Friday emphasized that the Merchant Discount Rate (MDR) applied to Unified Payments Interface (UPI) transactions exceeding Rs 2,000 is not a government‑imposed charge and will not be transferred to end‑users. She said the cost will be shouldered by traders, merchants, bankers and other participants in the payments ecosystem.
Understanding the Merchant Discount Rate
Sitharaman explained that the MDR is a fee levied by entities that facilitate the transaction, including the National Payments Corporation of India (NPCI), payment aggregators, service providers, point‑of‑sale (POS) machine manufacturers and merchant banks. These parties provide the infrastructure and services required for processing high‑value UPI payments, and the fee is intended to cover those operational costs.
The minister stressed that the MDR is neither a tax, nor a cess, nor a surcharge, and the revenue collected does not flow into the Consolidated Fund of India. “This is not a government issue,” she said, adding that the charge will not appear on consumer bills and will not be reflected as a cost for customers.
Impact on Consumers and Businesses
The clarification arrives amid ongoing speculation about a newly announced Rs 2,000 charge on UPI transactions. NPCI Managing Director and CEO Dilip Asbe previously noted that the likelihood of consumers ultimately bearing the MDR is limited to roughly 10 percent of the overall value on which the fee is collected.
At the 13th SBI Banking & Economics Conclave 2026, Asbe highlighted that a large share of UPI activity falls outside the MDR framework. Approximately 75 percent of the total UPI transaction value does not trigger the charge because it consists of payments below the Rs 2,000 threshold.
Current figures show UPI handling around Rs 30 lakh crore in total transaction value, with merchant payments accounting for about Rs 6‑7 lakh crore. The MDR applies only to the subset of merchant transactions that exceed Rs 2,000, meaning that the majority of QR‑code based merchant payments—estimated at 75 percent—remain unaffected by the new fee.
When MDR collections do occur, they are heavily concentrated among larger enterprises. Asbe indicated that roughly 80 percent of the fee revenue comes from businesses whose annual gross merchandise value (GMV) or digital payment collections exceed Rs 1,000 crore. These firms already accept credit‑card payments, which carry higher processing fees, and are therefore less inclined to shift the UPI charge onto their customers.
Businesses with annual turnover of Rs 1 crore and above could contribute an additional 10 percent of MDR collections. Like the larger firms, they typically accept credit‑card transactions and may not feel pressure to pass the UPI cost onto shoppers.
The remaining 10 percent of MDR collections represent the segment where there is a theoretical risk of the charge being passed to consumers. Asbe stressed that banks, NPCI and payment aggregators must work together to prevent such pass‑through, noting that the real risk of a consumer being charged is limited to that 10 percent slice of overall value.
Looking ahead, Asbe projected a modest rise in UPI activity for the current year: transaction value is expected to increase by about 10 percent, while the number of transactions could grow between 15 and 17 percent. He attributed the slower pace to reduced investment by ecosystem participants after an initial five‑to‑six‑year period of heavy spending on UPI infrastructure. The absence of a clear revenue model has prompted many players to scale back, and factors such as education, awareness and trust continue to influence adoption.
Despite the near‑term growth outlook, NPCI’s longer‑term ambition remains expansive. The organization aims to expand UPI usage to one billion users and to develop infrastructure that can support broader financial services, including credit, investments and insurance, thereby deepening the digital economy.
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